Erste Drops as KBW Warns of Hungary Mortgage Loss: Vienna Mover

By Boris Groendahl -
Sep 12, 2013

Erste Group Bank AG (EBS), the owner of
the second-biggest Hungarian lender, declined the most in two
weeks in Vienna after Keefe Bruyette & Woods analysts warned it
may incur losses in Austria’s neighboring country.

Erste fell as much as 4.8 percent and was trading 3.5
percent lower at 24 euros by 2:39 p.m. in Vienna, the lowest
intraday level since Aug. 28. That was the second-worst
performance after DNB ASA (DNB) in the 47-company STOXX 600 Banks
index, which was little changed.

Erste’s losses in Hungary may rise this year if Prime
Minister Viktor Orban’s government forces banks to convert Swiss
franc-denominated mortgages into forint at historical rates, KBW
analysts Ronny Rehn and Hadrien de Belle said in a note to
clients. They lowered their investment opinion on the stock to
underperform from market-perform.

“Not all is well and we challenge Erste’s 2013 operating
profit guidance of ‘up to -5 percent’ pre-provision operating
profit,” they said in the note. “The increasingly likely
negative impact from a conversion of FX mortgages in Hungary has
not been sufficiently reflected in estimates.”

According to the analysts, there is a 75 percent
probability Erste will book a 300 million-euro ($398 million)
loss on its 2.7 billion-euros of franc mortgages. Lending income
in Romania, where Vienna-based Erste owns the biggest bank, may
also drop because of lower interest rates, the analysts said.